Joseph Veriha and Christina F. Veriha v. Commissioner

OPINION

WELLS, Judge:

Respondent determined a deficiency in petitioners’ 2005 Federal income tax of $258,785 and an accuracy-related penalty pursuant to section 6662(a) of $51,757. Respondent concedes that petitioners are not liable for the penalty. The issue we must decide is whether the income petitioner Joseph Veriha received from an S corporation in which he owned 99% of the stock should be re-characterized as nonpassive income pursuant to section 1.469-2(f)(6), Income Tax Regs, (sometimes referred to as the “self-rental rule or the recharacterization rule”).

Background

The parties submitted…